Stephen Hester bonus prompts Labour to call Commons vote

Labour is to seek to overturn a near-£1m bonus for Stephen Hester, the chief executive of the Royal Bank of Scotland, in a vote designed to flush out coalition unease.

Labour sources say there will a vote on 7 February in an opposition day debate, drawing comparisons with the News Corporation/BSkyB vote that accelerated the pace on that proposed – and subsequently withdrawn – takeover in the summer.

A Labour source said: “David Cameron’s failure of leadership cannot be allowed to stand. We will force a Commons vote to let MPs show the public’s disapproval of Mr Hester’s bonus.”

The move will inflame political tensions and came after the Treasury minister Danny Alexander claimed on Sunday that the only way to halt bonuses was to take direct control of the bank (82% of which is owned by taxpayers), which would heap further losses on the public.

With pressure continuing to mounting on the government to intervene over pay, the work and pensions secretary, Iain Duncan Smith, also warned of chaos if the board had been overruled over any payments. There is already a political row over the government’s claim that it cannot stop bonuses.

While the current focus is on a near-£1m bonus for Hester, other senior bankers at RBS are expecting to receive bonuses for their efforts in 2011 from a bonus pool estimated to be at £500m. They are also due to be handed shares they were awarded three years ago under long-term incentive plans amounting to millions of pounds. Among them are John Hourican, who runs the investment bank and could get £4m, and Ellen Alemany, based in the US.

Alexander said on BBC1′s Sunday Politics show that he would “much prefer we didn’t have to pay bonuses”.

“My job in government is to be the person who is responsible for ensuring that taxpayers’ money is used wisely and that the taxpayer is protected, and that results in some difficult decisions on public spending and on other things too.

“In this case, the judgment we had to make was should we go further, as many of us would like to, and say let’s have no bonus at all? Have the government taking control directly of RBS, and therefore causing potentially much bigger financial risks to the taxpayer?

“In the end the calculation, from the point of view of protecting the taxpayer, is it was better to ensure that that didn’t happen to RBS, given that there are tens of billions of pounds of your money and all your viewers’ money tied up in this.”

The taxpayer put £45bn into buying shares in RBS, which are roughly worth half that sum. Though the government blames Labour for writing Hester’s contract, the shadow work and pensions minister, Liam Byrne, said the prime minster, David Cameron, could still intervene. Asked on Sunday Politics if the government should block the bonus, Byrne said: “Well, under these circumstances, yes I believe that would be appropriate.”

But Duncan Smith insisted that the decision was for the RBS board. The shareholding is managed by UK Financial Investments, which was set up to manage the bank at “arm’s length” from the government by Labour during the bank rescues in October 2008. UKFI was consulted on Hester’s bonus.

“You can’t interfere and tell them what to do. And if we did not like that, the only option would be to get rid of the board. If you do that, imagine what would happen in the banking sector, and imagine what would happen to RBS. You would have chaos,” he told the BBC.

The complexity of the pay deal for Hester, brought in to turn the bank around after its bailout, means that while much of the immediate focus has been on his share award for 2011, this is only part of the package that will be formally revealed in the annual report in March. He will also be handed his £1.2m salary and potentially more shares under a share plan that will pay out in three years’ time.

In addition, the bank is expected to give him 12m shares – worth about £3.3m – that would be put in a “share bank” and be used to determine his short-term bonus for 2012 (and is comparable with the 3.6m of shares that currently value his annual bonus at just under £1m). He has had about £20m from the bank in shares and cash since he was parachuted in.

Cameron also said over the weekend that replacing the top team at the failed bank could be even “more expensive”.

Chuka Umunna, shadow business secretary, said: “The prime minister says we are all in this together and that he wants a more responsible capitalism but his whole approach to the issue of executive remuneration in RBS shows that he talks the talk for tactical reasons because that’s what he thinks people want to hear but in reality he won’t act – it’s all hollow rhetoric.”